EU turns screw on Iran as Tehran offers talks

BRUSSELS/TEHRAN (Reuters) - Iran said unexpectedly Monday that it was prepared to return to talks on a nuclear fuel swap, shortly after the European Union agreed tougher sanctions including action to block oil and gas investment.

EU foreign ministers approved a range of extra restrictions on Iran that went well beyond U.N. sanctions agreed last month, including measures to block dealing with Iranian banks and insurance companies and steps to prevent investment in Tehran's lucrative oil and gas sector, including refining.

Shortly afterwards, Iran said it was ready to return to negotiations on a nuclear fuel swap "without conditions," according to the official IRNA news agency.

Talking of a letter that Iran handed to the International Atomic Energy Agency (IAEA), Iran's envoy to the U.N. agency, Ali Asghar Soltanieh, said: "The clear message of this letter was Iran's complete readiness to hold negotiations over the fuel for the Tehran reactor without any conditions."

The announcement appeared to be a move by Iran to show willingness to negotiate as a net of U.N., EU and U.S. sanctions tightens around it, but it was not clear that the quick offer of fuel swap talks would be enough to placate world powers.

"This is the time (for Iran's adversaries) to prove that they also are determined to come from confrontation and negotiation and to talks," Soltanieh told Iran's Press TV, but went on to note Iran's displeasure at the new EU sanctions.

"Having said that, it is disappointing that there is news about the negative destructive gestures which jeopardises the conducive environment," he added.

Turkey and Brazil agreed a nuclear fuel swap deal with Tehran days before the new U.N. sanctions were imposed, but this did not stop the major powers -- the United States, Britain, France, Germany, China and Russia -- from pushing ahead with a fourth round of Iran sanctions.

The European Union said Monday that the aim of its latest sanctions was to get Iran to return to negotiations over its uranium enrichment program, holding out the possibility that talks could be held in the coming weeks.

Iran last held talks with the West over its nuclear program in October 2009 but they produced no breakthrough.

The EU's foreign affairs chief, Catherine Ashton, and Iran's chief nuclear negotiator, Saeed Jalili, have exchanged several letters in recent weeks and EU diplomats now expect them to hold talks as soon as September.

The question is whether Iran will agree that those talks can look at the possibility of stopping its enrichment program -- which Western powers believe is aimed at developing nuclear weapons -- or whether it will try to focus them on a fuel swap, without any commitment to halting uranium enrichment.

Iran says its nuclear program is for peaceful purposes only, with medical and energy applications, not for weapons.

EU TAKES EXTRA STEPS

The EU restrictions adopted Monday, which are expected legally to come into force Tuesday, focus on preventing oil and gas investment, stopping dealings with Iranian banks and insurance companies, and stemming financial transfers.

"The longer (Iran) refuses to talk ... about its nuclear program, the greater the pressure and isolation Iran will bring upon itself," Foreign Secretary William Hague said.

"But Iran does have a choice: Britain and the international community stand ready to engage, and still believe that the way forward on this issue is multilateral negotiation."

Perhaps the hardest-hitting element of the sanctions is the move to prohibit new investment in and technical assistance to Iran's refining, liquefaction and liquefied natural gas sectors which are a mainstay of its energy-based economy.

There is a broad clampdown on the "supply, sale or transfer of items, materials, equipment, goods and technology" that could have "dual-use" purposes, including software, and restrictions on financial transfers and bond sales or purchases.

PRESSURE AND DIPLOMACY

The broadened sanctions are intended to apply financial heat on Iran, which is the world's fifth largest crude oil exporter but has little refining capacity and has to import around 40 percent of its gasoline needs for domestic consumption.

Traders said this month Iran was depending more on friendly countries for fuel supplies to sidestep sanctions intended to hinder its fuel imports, and was buying about half of its July gasoline imports from Turkey and the rest from Chinese sellers.

Only three cargoes of gasoline have so far reached Iran this month, according to shipping documents seen by Reuters, a sign that sanctions are biting. Because Iran subsidises fuel for consumers, pump prices will not be affected.

While China, Turkey, Malaysia and others may now step in to furnish Iran with goods it will no longer be able to get from the European Union, analysts said the EU sanctions were well-enough designed to ensure they would be effective.

"Most of the sectors that have been targeted in the EU sanctions are ones over which Europeans have a substantial leverage," Mark Fitzpatrick, an Iran specialist at the International Institute for Strategic Studies, told Reuters.

"Not so many other countries can provide the kind of financial services that will be cut off. Few other countries supply technology for liquefied natural gas, nobody else does re-insurance ... The European Union has very wisely found areas over which it has real leverage and cannot be supplanted."

(Additional reporting by David Brunnstrom and Justyna Pawlak in Brussels, Amena Bakr in Dubai and Luke Pachymuthu in Singapore; Editing by Tim Pearce)

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